Monthly Archives: April 2012

A first look at French stocks – part 1 (including my Top 10 French small caps)

So far, I have been reviewing 4 French stocks in more detail:

Vivendi SA
Esso S.A.F. (part 1, part 2)
April SA
Tonnelerie Francois Freres

From those four stocks, only Tonnelerie made it into the portfolio as a “Hidden Champion”.

France, as the second largest EUR economy has a lot of listed companies.

Bloomberg shows 847 listed companies based in France, a little less than Germany with 1110 companies, but more than Italy (304), Spain (201) and Portugal (67) combined !!!

Total market Cap for French companies is 1.09 bn (European “billion” or Amercian Trillion), slightly higher than the 1.02 bn/tn currently shown for Germany. Not surprisingly, France has more “big” companies with market caps above 5 bn EUR (45) vs Germany (35).

If we look at what I would call the “Small cap sweet spot”, 25-200 mn EUR market cap, we get 242 French companies against 498 companies in Germany.

General observations about French stocks:

I am definitely not an expert in French stocks and the French investment scene, but I would summarize my experiences up to now as follows:

– French companies, especially small caps are usually less leveraged and run more conservatively than their Italien or Spanish peers

– there is hardly any blogging or internet scene for French stocks. I know only of and the quality of posts there is usually quite low

liquidity for French small caps is sometimes extremely limited. I guess this has to do with a preferential treatment of 5%+ psoitions under French tax rules. So many small caps have a large majority owner and several long term 5% stakes. Some stocks trade only twice a day at very small amounts.

“shareholder value” seems to be still a kind of “dirty word”. One usually doesn’t see a lot of share buy backs etc. French companies either reinvest or keep a lot of cash on the balance sheet. M&A activity (take overs ect.) is also relatively limited. Don’t expect super efficient use of capital either.

– many of the smaller companies only report in French, which (thanks to Google translate ) is not a big problem anymore but might turn off some potential Anglo Saxon investors. Sometimes it is hard to find news, even on company web pages.

– disclosure in French reports is often relatively limited

So I would say that especially the smaller French stocks look really “neglected”, both by international and local investors.

For instance if I search for stocks with P/B less than 1 and a “single digit” P/E, I find 131 French companies against only 101 German companies. If I include a required minimum Dividend yield of 1.75%, I only get 32 German companies, but 84 French companies. So based on very simple metrics, there seems to be a bigger selection of “cheap” French companies than German companies.

Also when we look at the indices, France looks comparatively cheaper than Germany. Current P/E for the CAC 40 is 10.1 with a dividend yield of 5.3% against a P/E of 13.1 and dividend yield of 3.7% for the German DAX.

Interestingly, French small cap indeces are relatively expensive. The CAC Mid 600 Index for example tardes at an 12x forward P/E which is almost the same as the German MDAX.

However, in order not to make it too exciting, I will reveal my current “TOP 10 watchlist” of potentially interestign French stocks which there are:

1. Poujoulat (FR0000066441)
Chimney manufacturer, consistent profit growth, single digit P/E

2. Installux (FR0000066441)
Specialist for aluminium products, very profitable. Extremely cheap on an EV basis because of large cash position

3. Gevelot (FR0000033888)
Ridiculously cheap auto parts company. Very good post at Oddball

4. Samse SA (FR0000060071)
Cheap regional DIY chain

5. Piscines Desjoyaux (FR0000061608)
Swimming pool manufacturer, cheap, Royce has built up a 7.6% position in 2011

6. Trigano (FR0005691656)
Recreational vehicles, caravans

7. Groupe Guillin (FR0000051831)
Plastic packaging

8. Thermador (FR0000061111)
Plumbing supply wholesale

9. Precia SA (FR0000060832)
Industrial scales

10. GEA SA (FR0000053035)
Highwy toll collection equipement

All those companies are plain vanilla “old economy stocks” who score incredibly well on my “boring but sexy” screen which combines ROE, volatility of ROE, growth, and solidity of balance sheets relative to price over 10 years..

Other interesting small caps which I haven’t researched deeply but might be interesting are:

Tessi (good post at valueinvesting france)
Chargeurs (another Seth Klarmann / Baupost position)
Mr. Bricolage
Maisons France

I will try to write a post for each of the “Top 10” companies in the coming weeks. However I would really appreciate if readers who have other interesting French stocks on their radar to shoot me a comment etc. or if you have researched companies on the list.

It would also be great to know if there are other interesting blogs and resources for French small caps like valueinvestingfrance.

For the portfolio I am actually thinking of taking a “basket” approach as it would take ages to build up a position in any of those stocks. Sow this would mean for instance 5x 1% positions as a “French basket”.

DISCLAIMER: The author privately owns already some of the discussed shares

Portfolio updates – Praktiker, Nestle, SIAS, Piquadro & TUMI

Just to summarize some recent portfolio transactions:


In the last few days, Praktiker came back below my limit at 41%. So in toatl I bough now 641.000 nominal bonds at a “dirty price” including accrued interest of 41.62%. Clean price would be around 40.50%.


As announced yesterday, I sold the Nestle shares at 54.47 CHF. Including 2 dividends, Nestle produced a positive performance of 24.17% for the portfolio.

I kept the CHF hedge, Vetropack is now 100% hedged.


Also yesterday, I “pre” invested the SIAS dividend back into SIAS shares. Ex date was April 23rd, however payment date is April 26th.


Piquadro fell back below my buying limit of 1,50 EUR, so I will increase the position of currently 1%. Howver, tarding volume is relatively small. As always, I will sell short 50% of the purchase value with FTSE MIB ETFs.

The TUMI IPO by the way has been a great succes. The stock increased from 18 USD to 26 USD in the frist few trading days. This gives TUMI a valuation of 1.8 bn USD, which translates into P/S of 6 and EV/EBITDA of 30. Cpompared to this, Piquadro is valued at EV/EBITDA of 7 and P/S of 1.

I had hoped that the IPO of TUMI would represent some kind of “catalyst” event for Piquadro, but I think at the moment Piuqadro is overwhelmed by the Euro Crisis 2.0.

Finally, the net cash position of the portfolio after those transactions is currently 11.8%.

Nestle M&A, Walmart Mexican bribery, SIAS

Both remaining large caps of the portfolio, Walmart and Nestle had some big news today.


Seems to be involved in a bribery scandal in Mexico which they tried to cover up on company level.

There is very good coverage of the legal aspects at the FCPA Professor blog (part 1, part 2).

A commentator speculates that this would end in a fine of 100 mn USD, I have no idea if this is realistic or not. In any case, I will sell Wal-Mart as soon as I find something else.


Nestle paid 11 bn USD for Pfizers baby food division, a 19.8 (!!!!) EV/EBITDA multiple after a bidding war with Danone. No doubt, Nestle is a great company, but for my taste at a current 12xEV/EBITDA, a lot of positive developement is already priced in.

So with the VWAP of today (after cashing in the dividend), I will sell the Nestle position at today’s VWAP.

Originally, this was a pair trade with Green Mountain as short psotion. For the time being I will keep the Green Mountain short open.

SIAS went ex dividend today, howver loosing some more. In order to take adavantage of the low price, I will reinvest the Dividend proceeds at today’s VWAP.

IVG Convertible – follow up & quick balance sheet analysis

After my post from Friday, I got a lot of comments.

One major argument is that the non-payment of the interest is a signal of weakness on IVG’s side and that this will negatively impact IVG’s ability to conduct business and get capital in the future. Here I strongly disaggree. First of all, after the 100 mn plus loss in 2011, everyone should know already that IVG is in a relatively weak or distressed position anyway.

Both, for shareholders which had to come up with additional money and didn’t get dividends for the last few years, as well as for senior holders, it would have been a really bad sign if IVG would have continued paying the hybrid coupon. It should be pretty clear that IVG might need more equity capital in the future as well as more senior funding,so it doesn’t make sense to offend those two groups. However it is extremely unrealistic that IVG is able to issue hybrid capital or another unsecured senior bond at any point in the near future.

So from my point of view this move has increased IVG’s credibility with equity holders and senior creditors.

Most of the commnets were right to the extent that my assumption of IVG not going bankrupt in the nect two years is maybe not an overly convincing investment case if one cannot quantify the downside scenario (bankruptcy).

So let’s look into the annual report 2011 to get a feeling about the potential liquidation value of IVG.

IVG’s business activities can be divided into 4 areas:

1. Own real estate
IVG owns a potfolio of around 3.8 bn of real estate. They show 227 mn net rent income which translates into a 6.0% yield on assets. The portfolio is 87% Germany based with a large share located in the booming Munich and Hamburg regions.

6.0% yield sounds like a relatively reasonable yield for German prime office real estate. Maybe 7% would be more conservative.

2. Real estate developement
This is of course the “problem child”, generating ALL the losses for IVG. Developement assets are booked under “inventory” and amount to 1.0 bn EUR. Here I would take a 50% haircut to reflect the risk of the largest developement project, the “Squaire” project in Frankfurt.

3. Oil & Gas caverns
This is the “crown jewel” of IVG. Few people know this, but IVG used to be a Government owned company (“Industrie Verwaltungsgesellschaft”) and was IPOed in 1993. The Oil and Gas Cavern business is a remainder of the old “Industrial Administration” business. Basically IVG has the license to develope and build underground storage caverns for oil and more important for natural gas in Germany.

As one can imagine, with the nuclear energy exit, natural gas storage is a big issue.

Without a 1.4 bn sale of caverns in 2008 into a special fund, IVG would have been most likely bankrupt by then. As a consequence of the sale, IVG now is obliged to sell most of the caverns which they currently develop into the fund. However as they manage the fund themselves, they are of course in a relatively good position to realize a fair price for them. Additionally they earn some nice management fees from the cavern fund.

Current book values of Caverns (at cost) are 770 mn EUR, IVG estimates the market value being 325 mn EUR higher. As a conservative approach I would only take 50% of the markup into my valuation.

4. Third party property fund management

They have two divisions: Insittutional fund management with ~12 bn EUR under management which generated 18 mn EUR EBIT in 2011 and a private investor fund management unit which genrated -5 mn EBIT having 3 bn under management.

In my opinion, IVG could profit from the closure of the open ended Real estate funds because they never participated in this market.

I would value the third part Asset management at between 1-2% of Assets under Management, giving a valuation of 150 -300 mn or 275 mn as mid point.

Summary valuation of Assets

2011 Adj. Val Comment
Intangibles 251 0 100% write off
Inv. Property 3,964 3,398 scaled to 7% yield
PPE 157 118 25% discount
Financial Assets 189 142 25% discount
equity part 95 71 25% discount
DTA 404 0 100% write off
Receivables 60 45 25% discount
Inventory 1,025 513 50% discount
Receivables 179 134 25% discount
Cash 238 238 0% discount
AFS 341 256 25% discount
Asset Management   275 1.5% of AUM
Marekt value caverns   162.5 50% of disclosed adj.
Total 6,903 5,351

In this table I have applied the discussed adjustments plus 100% “write offs” on intangibles and DTAs as well as a 25% write-off on anything else than cash.

Based on this we get around 5.4 bn EUR “Net Asset” Value which should be a proxy for a liquidation value.

If wee look at the liability side, we can see that we have a total of 5.5 bn Liabilities including the convertible bond, therof 4.9 bn financial liabilites and 0.6 bn other liabilites (excluding the hybrid).

Interestingly, “only” 2.8 bn of the loans are “secured” loans. For the sake of simplicity, I assume that all other financial liabilites are “pari passu” in a liquidation.

This leads us for the following estimation of a “unsecured” recovery:

mn EUR
NAV 5,351
-secured 2,764
NAV for unsecured 2,587
unsecured 2,736
coverage unsecured 94.6%

Under my assumptions, the downside case for unsecured senior is around 95%. Howver this also means that in the case of bancruptcy, not only equity holders but also Hybrid holders get wiped out completely.

One final word to “comparable” situations, especially Pfleiderer which gets mentioned often internet boards:

The main difference to Pfleiderer is in my opnion the structure of creditors. At Pfleiderer, the banks sold the loans at large discounts to Hedgefunds. For those HEdgefunds, which maybe bought at 40-60 cents on the EUR, a quick bankruptcy is the best case, because then tehy can take possesion of the underlying assets and realize close to nominal value.

For IVG this is not true. At least to my knowledge, the IVG loans are held by banks at nominal value, so taking possesion of the underlying assets would not yield a direct profit, but would increase the required capital to be held on a bank balance sheet, which the banks cannot afford.

To cut it short: As soon as Hedgefunds enter the secured loans at a discount one has to watch out, but in a “normal” situation, going concern is in the interest of all parties (Management, Secured creditors, shareholders etc.).

Summary: In my opinion, the IVG convertible represents “good value” if my assumptions are correct. However it should (as any distressed situation in general) viewed as a risky asset. You don’t get 15% p.a. (at 79%) for nothing.

For the portfolio, I think it is an intersting diversification play, because as long as banks struggle, they will support IVG.

P.S.: Just a a funny coincidence, IVG reported today that they rented out one of their Hamburg propoerties to no one other than PRAKTIKER !!!!!

Book review: How to Make Money in Value Stocks (Stockopedia)

Dave from Stockopedia sent me a free copy of a new E-Book called ” How to Make Money in Value Stocks”

It is only 70 pages “short” and tries to introduce and summarize all relevant “schools” of value investing.

The book in my opinion is very well written. I liked especially the very “fluid” language, the very clear and easy to read layout and the many links they have at the end of each chapter.

I think its the perfect short book for anyone who wants to get a short well written overview on general value investing principles.


– it looks like that you get it for free if you register on their website. Then it’s great value. However I would not pay 14.99 GBPs what is announced to be the retail price for the book

EDIT: Dave from stockopedia just contacted me that there will be a Kindle Ebook edition for 4.99 GBP which seems to be a very reasonable price.

– the book in my opinion emphasizes a little too much what I would call “formula investing” as the best tool. However, they seem to offer value screens as a paid subscription service, so this makes sense from their perspective.

– They leave out the priciples and techniques of intrinsic valuation. This again is understandable from their perspective, however for anyone seriously interested in Value investing, I would definitely recommend to read for exapmle Prof. Greenwald’s books first.

Weekly links

Interesting free kindle EBook from Greg Speicher You have to register and then (maybe) get the book…should be worth a try.

Very short Cresud presentation. Written before the YPF nationalization.

Nate from Oddball has a very good write up on Gevelot, a super cheap French small cap.

Nice post from Stephan about Greek toy retailer Jumbo (German)

Gannon on “foreign” stocks (Non US). He even mentions on of my favourite stocks which I haven’t covered in the blog yet….

Prem Watsa likes Abiti Bowater a paper company.

Good analysis of Boyd Group, a North American collision repair chain.

IVG AG Convertible Bond (ISIN DE000A0LNA87) – Capital Structure considerations

The IVG Convertible bond is one of my “Special Situation” investments with a weight of ~2%. The bond is far out of the money, but has a bondholder call in 2014.

The bond has performed quite well, despite IVG showing a significant loss for 2011 at the end of March.

However, today the convertible bond got “hammered” because of the following news:

IVG has another bond outstanding, a subordinated bond. Yesterday IVG announced that following the loss (which they have already released and of March), they will not pay a coupon on the subordinated bond this year.

IVG Immobilien AG has resolved to suspend remuneration on the hybrid capital issued by the company (WKN: A0JQMH). The Board of Management bases its decision firstly on the discontinuation of dividend payments to the company’s shareholders since 2008 and the resulting equal treatment of the different equity investors. Secondly, the financial resources that consequently remain in the company can be used to further improve the capital structure.

The subordinated bond has a volume of 400 mn EUR (same as the convertible) and a coupon of 8%. This means IVG is saving 32 mn EUR by not paying the bond per annum.

Of course this is bad news for subordinated bond holders which seem to have expected further coupon payments:

What convertible bond holders seem to miss here is that this is actually positive news for all senior and secured creditors including the convertible bond holders.

Each EUR retained on the coupon from the subordinated bond increases the claim for the senior creditors and thus increases the intrinsic value of the senior creditors.

So instead of decreasing in value, the senior bond should have actually increased in value. At a price of 75%, the bond would theoretically yield 18.3% for the remaining two years.

For the portfolio I will increase the psoition up to a full position with a limit of 75% .

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